Oil spread widens as Midwest glut far from dissipating

The API report is neutral to bearish as total stocks built even with the draw in distillate fuel. The oil market is mostly lower heading into the US trading session and ahead of the EIA oil inventory report at 10:30 AM today. The market is usually cautious on trading on the API report and prefers to wait for the more widely watched EIA report due out this morning. I view the current gains in oil prices to be more related to the economic data and not the API report. The API reported PADD 2 stocks decreased by 0.4 million barrels while Cushing stock decreased by just 24,000 barrels. On the week gasoline stocks increased by about 1.6 million barrels while distillate fuel stocks decreased by about 1.4 million barrels.

My projections for this week’s inventory report are summarized in the following table. I am expecting the US refining sector to decrease marginally. I am expecting a modest build in crude oil inventories, a small build in distillate fuel... as the weather was not very winter like over the east coast... and a modest build in gasoline stocks during the report period even as refinery runs continue to decline ahead of US maintenance season. I am expecting crude oil stocks to increase by about 2.5 million barrels. If the actual numbers are in sync with my projections the year over year comparison for crude oil will now show a surplus of 32.3 million barrels while the overhang versus the five year average for the same week will come in around 43.8 million barrels.

I am expecting a build in crude oil stocks in Cushing, Ok and in PADD 2 as the Seaway pipeline has been has been running at constrained levels for most of the report period. This will be bullish for the Brent/WTI spread in the short term as the spread is currently trading well above the level it was trading at just prior to the Seaway pipeline announcement.

With refinery runs expected to decrease by 0.2% I am expecting a modest build in gasoline stocks. Gasoline stocks are expected to increase by 1.6 million barrels which would result in the gasoline year over year surplus coming in around 2.1 million barrels while the surplus versus the five year average for the same week will come in around 4.2 million barrels. If the actual gasoline build is in sync with my projection gasoline stocks will have built by about 37 million barrels since November.

Distillate fuel is projected to increase by 0.3 million barrels. If the actual EIA data is in sync with my distillate fuel projection inventories versus last year will likely now be about 15.7 million barrels below last year while the deficit versus the five year average will come in around 16.5 million barrels.